How market orientation and outsourcing create capability and impact business performance

For most firms, developing the capability to compete and perform is crucial. The literature suggests that market orientation and outsourcing are two such sources for building capabilities in the marketplace. However, the relative contribution of market orientation and outsourcing to capability and superior business performance is unclear. To bring clarity, two pathways through which market orientation and outsourcing build capability and enhance business performance are proposed. Using data from foreign and Indian firms, the results indicate that both market orientation and outsourcing contribute to building capability, and that outsourcing further contributes to business performance. Also, it was discovered that low‐risk market‐oriented and high‐risk outsourcing firms experienced a positive impact on business performance. The implication of these results for managers is that market orientation and outsourcing can be complementary tools in their efforts to build capability, enhance business performance, and manage risky environmental conditions. © 2009 Wiley Periodicals, Inc.